Question 2 Mentari Berhad holds a combination of debt, common shares and preferred shal structure. common shares and preferred shares in its capital 1) Assume that the company has cost of debt before tax of 10% and the tax rate 15 34 Calculate the cost of debt. 11) Assume that a common share paid a dividend of RM4.50 last year. The value of this share is RM25 and dividends have grown at a rate of 8% per year and are expected to continue forever. The floatation cost is RM7 per share. Calculate the cost of common share. iii) Assume that a preferred share is paying a 10% dividend on a RM100 par value. If a new issue is offered, the floatation costs will be 12% and the current price of the share is RM95. iv) Based on your answers in b (i), (ii) and (iii) above, calculate the weighted average cost of capital (WACC) of Mentari Berhad if the company holds 30% of debt, 50% of common shares and 20% of preferred shares in its capital structure. v) Discuss why it is important for Mentari Berhad to determine its overall weighted average cost of capital (WACC)